Considering that most of the growth was in leisure/hospitality, I interpret this move as the official "end" of the lockdown era. We have achieved full reopening/replacement of the bars, restaurants, and hotels that shut down during COVID, who proceeded to hire back all their low wage service workers. This explains the explosion in job growth with a stagnant avg hourly earnings rate - the new jobs are mostly low wage jobs!
This might be what the fabled "soft landing" looks like.
Anecdotally, there has been a striking increase in the amount of new service workers in training at restaurants and coffee shops in Portland. There was a very acute sense of labor shortage for the last few years, and that has gone.
I’m hoping that we might see coffee shops (other than Dutch Bros) open past 3 PM someday. Enough operators to keep the buses, trains, ambulances, and 911 call center working are probably higher priority though; those orgs have started reporting better hiring results recently as well.
Also anecdotally: We went to $CASUAL_DINING_MEGACHAIN recently. The food was much better than I remembered, but they were so understaffed the greeter was also working the kitchen. It took 20 minutes to be seated (due to the greeter stand being unmanned; there were plenty of tables), and about 2 hours to eat and pay.
I suspect people are still being very picky about where they work.
I can 100% confirm this - every hotel is incredibly understaffed in all the "working-class" departments; places that used to have an entire overnight banquets crew to set for the next morning are down to one guy and a dog, and the dog never shows up.
>Anecdotally, there has been a striking increase in the amount of new service workers in training at restaurants and coffee shops in Portland.
Continuing on that anecdote, I've read two reviews of restaurants in the Portland metro area in the past week where the customer left a negative review because they were being served by a new, untrained server (each time, the restaurant responded that their experienced server was sick that day). There's definitely a bump in hiring happening.
What I hate about financial headlines is the ease of causational attribution. The same event can be used to explain two diametrically opposed outcomes.
Why yes, because stories of tech layoffs and stocks buybacks were the focus earlier in the week. Now these same investors wake up to some news about low wage job growth and all of a sudden their sky is falling again and the market shrinks like a petulant child throwing a temper tantrum.
SPY and VTI are down like 0.65% right now and haven't even given up yesterday's gains. Plus a bunch of non-Meta tech companies missed on earnings yesterday. Come on.
I regularly keep up with financial news and it's hilarious how each morning financial reporters quickly rush together articles about "<direction market moved> caused by <current top news story>".
I really enjoy the pre-market opening reports, always trying to predict the direction of the market (usually based on the current futures direction) that are, as expected, wrong about half the time.
The best are when you can catch two contradictory headlines based on when they were published relative to market movements.
A stock movement that's within two standard deviations of typical price movements is very likely not the result of a single new piece of information.
Before reading this headline I was sure that the market was down specifically because of those underwhelming tech earnings. Futures were down when I checked in last night and before the jobs report news broke. I think the claim that the jobs report is influencing anything is unproven at best, willfully misleading at worst.
In what kind of world does a strong jobs number, implying a strong economy, sink stock prices?
There is a clear dichotomy between the 'financial' economy, and the actual economy. The pre-eminence of 'Shareholder value' should be relegated to the 20th century, and this century we should focus on making the economy serve society.
> In what kind of world does a strong jobs number, implying a strong economy, sink stock prices?
> There is a clear dichotomy between the 'financial' economy, and the actual economy. The pre-eminence of 'Shareholder value' should be relegated to the 20th century, and we should focus on making the economy serve society.
Low unemployment means wage inflation (as companies compete for scarce labor), which means more inflation in general, which raises the odds that the Fed - which is currently fighting very hard to try to constrain inflation, as the law requires it to do - will have to raise interest rates. This is good in the long run, in that inflation is very bad (and particularly bad for poorer households), but in the short run it hits stock prices because company borrowing will become more expensive, and there's some risk of over-correcting the economy into a recession.
I wish people making political points about economic news would at least try to understand the economic news first.
You've provided an explanation (which I'm also completely familiar with) but not a rationale.
What is really happening is that corporate profits are set to be squeezed (slightly) by rising costs, both labor and capital, and so that provides a reason why stock prices go down.
But it doesn't answer the actual question, of why everything going great should be a bad thing.
As I said, the answer is just an explanation, which I'm quite familiar with, though I dispute that inflation is necessarily 'very bad'.
"It's just money. It's made up"
Our 20th century financial system is as much made up as it is 'fundamental economics' and it has now got out of hand,and proves to be unfit for the duty of serving society for the 21st century. As evidence, when strong job creation and economic growth is 'bad'.
I feel like while there is a correlation between trends in the stock market and the general economy'a well-being, a lot of these kind of stories can be explained by remembering they are correlated but not perfectly. According to the article, this is on fears of fed interest rate hikes.
It's easier to accept the stock market has it's own logic which may not necessarily mean what is good for the economy or not.
This is an important point. The title is implying not just correlation but causation. Often financial news articles are phrased differently to avoid this, for example using something like "amid strong US jobs report". Sounds pedantic but it's a subtly pernicious thing.
The fed is stimulating the economy by raising interest rates. Interest rate increases mean more federal funds flow into the economy via increased paymentsto treasury bond holders and the like. Since our national debt outstanding vs GDP is very high its having a large effect and the is seemingly blind to this.
It's funny how "no one wants to work" has quietly turned into "we hired too much and are laying off large swathes of people" and "record level of unemployment"
It seems like tech and discretionary stocks have gone up and consumer staples stocks have stayed flat gone down in the last few days to month. See VCR and VDC.
We've worked to keep the dollar less strong since a rapid increasing in the value of the dollar risks a global debt crisis. A lot of people in finance were quite concerned earlier this fall when the dollar started to rise rapidly.
I can't read the article, so this is one of those shoot from the hip comments.
With that health warning out of the way, I am surprised that a strong jobs report would sink stocks, unless those stocks expected to be able to get some benefit from a weak jobs report like slowing the increase in interest rates, or a cheaper labor market because there were lots of tech workers recently laid off and would therefore have downward pressure on their salaries?
Strong jobs should provide confidence. Maybe just maybe we aren't going to have a big recession any second.
> unless those stocks expected to be able to get some benefit from a weak jobs report like slowing the increase in interest rates, or a cheaper labor market because there were lots of tech workers recently laid off and would therefore have downward pressure on their salaries?
This is the point. The Fed has been very explicit lately that they've raised interest rates in order to depress wages. They said the quiet part out loud.
The extent of denial about this is terrifying. I mean, the Fed literally gave that exact reason for the first rate increase. They could not have been anymore explicit.
> unless those stocks expected to be able to get some benefit from a weak jobs report like slowing the increase in interest rates, or a cheaper labor market
I'm pretty sure it's the former. Higher rates wallop stocks in multiple ways. They slow the economy in general, they directly raise the cost of borrowing for debt-addicted corporations, and they create an attractive alternative for investors.
If you had a lot of money in 2020, you could buy 10-year treasuries yielding less than a percent, or you could take your chances in the stock market that was down 25% off it's highs. Today, it's completely flipped. You can make 3.5% in the bond market with no risk, or you can roll the dice on a stock market that's up pretty substantially.
This is going to keep happening because the underlying issues of why the labor market is tight still haven't been internalized by managers. Baby boomers are retiring and there comparatively aren't many zoomers entering the labor market. Aggregate supply of labor is shrinking every year.
I don't think rate hikes are going to be able to solve this problem because it's not an issue of "there's too much money" but rather an issue of "there's just not enough labor."
To me the headline says it all. Those workers, being in demand, asking for higher wages. What about our profits! We need a level of desperation in our work force, at least that caused by 4% unemployment, if we can expect to maintain the wealth gap that has been built up over the last years!
(If it's not clear from the above, personally I am in favor of low unemployment and higher income equality.)
People employed can afford to buy stuff though, which also increases profit. The simpler reason is that it means that people believe Fed will read this as a license to not have to slow down rate increases, which will hurt stocks.
That's more or less exactly what the comment you're responding to is saying.
The way that higher unemployment and lower wages and income inequality is maintained is by the fed hiking rates until it engineers a recession (which hurts stocks).
> The simpler reason is that it means that people believe Fed will read this as a license to not have to slow down rate increases
But there's a direct relation, because the Fed has been very explicit that they're worried about employment and wage growth, and they're raising interest rates in order to depress those.
The Fed operates according to the interests of the wealthy.
> The Fed operates according to the interests of the wealthy.
That may me true (FWIW I think the Fed acts in the Fed's own and the US Government's interests). However, mainstream macroeconomics posits something called "demand-pull" inflation.[0] The symptoms of demand-pull inflation apply to the labor market, and look kind of like what we see today. I don't really believe in that myself, but the vast majority of professional economists do.
This is the nonsense narrative the mainstream media is trying to pedal to drive populist engagement, but it doesn't make any sense. The interest rate hikes have dramatically decreased wealth inequality and tempered inflation without affecting unemployment. The Federal Reserve has shown that they don't care that their high interest rates are driving down stocks, so they'll continue to allow them to tumble. By contrast, they have said that they would lower interest rates again if unemployment increases to much, but by some twisted logic, people think that it means that it's their goal to decrease employment rather than unemployment being something that they actually care about.
> The interest rate hikes have dramatically decreased wealth inequality
Citation please.
> tempered inflation without affecting unemployment
If they've tempered inflation, then why did the Fed just raise them again, and suggest they might be raised even more?
> people think that it means that it's their goal to decrease employment
No, the Fed has explicitly said that their goal is to reduce wage growth. They're happy to have people employed, as long as the workers don't ask for higher wages.
You're painting a false dichotomy: employed or unemployed. But how much you make while employed is crucial.
> If they've tempered inflation, then why did the Fed just raise them again, and suggest they might be raised even more?
Inflation is still at 6.5%, which is greater than the interest rate.
> No, the Fed has explicitly said that their goal is to reduce wage growth.
No, they explicitly did not say this. This is the nonsense framing that I'm talking about. The Federal Reserve does fear a wage price spiral, but that's because that's a feedback loop that undermines economic stability. Inflation affects everyone. Meanwhile, wage increases benefit some people more than others, for example younger workers who are happy to job hop. Meanwhile, others are stuck paying higher prices on the same income.
> The richest 500 people collectively lost $1.4 trillion last year.
As far as inequality is concerned, does it really matter whether Elon Musk's net worth is $300 billion vs. $150 billion? The differences were already obscene before the pandemic temporarily inflated them further. I wouldn't call it a dramatic decrease in inequality when most people are still basically standing in place economically. It's easier for the wealthy to go down a lot (temporarily), because they have so much farther to fall, starting from a toweringly high position.
Small changes of income and wealth make a big difference to those at the bottom. Relatively massive differences of income and wealth actually don't make much real difference to those at the top. They're mere statistics, points in a game, bragging rights.
The reason the Fed is willing to temporarily tank stocks is because the wealthy know it's just a temporarily blip that doesn't really hurt them too badly in the long run. The only thing that could hurt the wealthy in the long run is a fundamental shift in bargaining power between capital and labor. That's precisely what the Fed is trying to stop now. As you call it "a wage price spiral", which could dramatically improve the economic position of the working class.
The price of consumer goods can be raised more quickly than the price of labor, which is why in the short term, workers may be hit by inflation, and wage growth lags behind more slowly. But eventually something has to give, and a long-term supply/demand shift of labor would eventually benefit labor in the long run... unless wage inflation is nipped in the bud.
Sometimes you have to make short-term sacrifices for long-term benefit. Both capital and labor know this. On the labor side, a strike for example can be very painful short-term to workers, but the goal is to improve their status long term. Consumer price inflation can work the same way.
> Inflation affects everyone. Meanwhile,
Everything in the economy has a differential effect on different people and groups of people. "Inflation" is an abstraction. The CPI for example is a somewhat arbitrary "basket" of goods. But if you look at individual items, some prices go up a little, some a lot, some go down a little, some a lot, and some stay the same. I find terms like "inflation" and "the economy" to be relatively useless abstractions. It's the differences that are crucial.
What we've seen during the recent decades of low "inflation" has been increasing disparities of income and wealth between the top and everyone else. You call that "stability". I call it unstable and unsustainable.
> The Fed operates according to the interests of the wealthy.
Eh, the Fed is playing business cycle PID controller with the standard economic model that's worked to keep inflation low since the 1970s; having employment above a certain level ("NAIRU") causes a "wage-price spiral", and the side effects of the resulting inflation are deemed worse than those of artificially keeping employment higher than it otherwise might be.
It certainly works for stability and against a high-inflation environment where people are constantly on strike. The side effect is indeed that this pressures wage earners.
> the side effects of the resulting inflation are deemed worse
Deemed worse by whom?
People complain about inflation in the 1970s, but just like now a significant part of that was caused the supply chain (OPEC then, Covid now), and in any case US income and wealth inequality are actually much worse now than in the 1970s.
But obviously labor costs are a big part of the costs of goods, and the Fed has specifically cited wage inflation as a contributor to goods inflation and aims to reduce wage inflation by raising interest rates.
Do you think that inflation doesn't affect the poor? Or do you think the Fed has some tool which can reduce inflation without reducing wages, which they are choosing not to use? Or some third option?
> Do you think that inflation doesn't affect the poor?
Yes, it affects the poor, but the only way out of poverty is employment and wage growth.
> Or do you think the Fed has some tool which can reduce inflation without reducing wages
No.
> Or some third option?
Wage inflation is not necessarily a bad thing, as long it outpaces the inflation of other products. Of course it all depends on whose wages are rising the fastest, the wages of the poor or the wages of the wealthy. What corporations don't like is when wage inflation cuts corporate profits.
The only thing that really causes inflation is wage growth, and an observed phenomenon is that overall wage growth does not increase the living standards of workers anyway, because scarce necessities like housing will just increase at a high enough rate to capture all excess wages. On the other hand, the real consequence of wage growth is supply chain and staffing disruptions.
If we could get wage growth without offsetting inflation, that would be great. But the "wealthy" boogeyman that you reference would never allow that to happen!
A period of time with a lot of inflation and wage growth? How dare I say the two are related.
It's not a blanket statement. Real war causes inflation, monopoly power causes inflation. But in the context of modern US, the biggest thing is wage growth.
My hypothesis is the offered wages are below the market clearing rates. People have a willingness to work for every price offered for their labor. If they aren’t filling positions then the wage is too low.
Granted, if they raise rates to 10%+ they’ll drive the entire economy into the ditch. Then these jobs will disappear and prices will deflate-along with lots of horrific side effects.
Edit-The US minimum wage is 7.25/hr or 15,080 per year at full time. The US poverty level for a single person without children is 15,225. They have to specify it in a spreadsheet. Because of all the qualifications on that information.
Anecdotally but I think there's a large portion of the workforce that left during covid and has determined that returning isn't valuable.
Mostly the second income in a household, and often the woman (who was lower paid in general anyway). Why return for $20 an hour when you cut all your daycare expenses, maybe even downsized? You'll have to offer a wage high enough to make it worthwhile.
I have seen similar across various age cohorts. Older folks 65+ who opted for Social Security + Medicare versus going back to an office, as well as couples who found better value from single income and making adjustments versus two incomes and intermittent child care arrangements (child care is not only expensive, but difficult to find, due to wait lists, staff shortages, etc).
Yeah, and I feel many people just needed to "try" it to realize "this ain't so bad, sheep" and then they stick with it.
When a second wage earner loses a job you get into a panic because the bills are still coming and you're used to running at a certain spend rate - but when you've been not working for 2+ years now you're going to have acclimatized to one income, and the desire to return may be there, but the fear driven need won't be. And that means you can wait and choose a good offer for you.
It's definitely a crude measure. I think it acts as more of a signal to corporations that they should instigate mass layoffs.
You don't want to be the only company doing layoffs and then just have your competitors gobble up your talent and eat your lunch. So the Fed signals the safe time for everyone to do layoffs simultaneously. It's implicit coordination.
Not interest rates, but tanking stocks and investments absolutely will change that. If my retirement investments lose 50% of their value, I'll have to go back to work.
I can't believe how fewer people see that side! It's good for the working folks to get competitive wages, but what are you doing with the troves of people who had to embark in the 401k/IRA/etc. "trains"? Are they expected to get back to work in their 60s/70s/80s, to make up for inflation and purchasing power
Living out of [only] social security is a bad joke, for a standard of living barely above just eating, sleeping and not getting sick. I contributed the max throughout my 30 years professional career, I'm fully vested, and it can barely cover anything of usable value, in these times. If one thinks that culturally / spiritually (but not religiously) could be supported by socsec, is delusional. Leaving the States is the only reasonable move, considering the present situation.
Note that I said "That's supposed [emphasis added] to be what Social Security is for."
The question is not what the federal government is actually doing right now (if anything) to help people affected by inflation but rather what the federal government could do to help people affected by inflation.
Some people in the comments seem to be claiming that driving up interest rates is literally the only logical possibility, and nothing different could be done.
The equation of retirement and stock market investment is a deliberate policy choice designed to push large amounts of working class money into the stock market, thereby benefitting the speculators and financiers.
I've been thinking about your comment for a few days now.
>The equation of retirement and stock market investment is a deliberate policy [. . .]
Reads to me as if investing in stocks is a negative, that has been deliberately pushed on society as a whole. I am interested to hear what an alternative would be for you. What else can I park my money in for a good enough return to ensure that I don't have to rely on the weak (and ever weakening) SS? I legitimately cannot come up with anything worthwhile.
> Reads to me as if investing in stocks is a negative, that has been deliberately pushed on society as a whole.
I wouldn't say it's a negative per se, I'd say that it's risky. It's only suited for those who have the time, knowledge, experience, and money to lose. The working class in general aren't experts in the stock market, nor should they be, and they certainly can't afford to lose their retirement funds. This is why I say this policy is "benefitting the speculators and financiers", who are the natural participants in the stock market.
> I don't have to rely on the weak (and ever weakening) SS?
But why is it weak and ever weakening? That's the point. It's a deliberate policy choice for the government to undermine SS.
The fed has been pretty clear that it sees wage growth as a serious inflation problem (because it's sticky) and they're intentionally raising rates to force cuts to wages and employment.
Personally - I'm a little mixed, since I believe rates were far too low and have created a very strange economy where you have companies that never actually make money become household names (ex: WeWork, Carvana, Uber, Zillow, Pinterest, etc...) because they gobble up debt banking on some mythical future profits once they capture the market.
But on the other hand, I feel like the current stance of the fed - "raise the rates to stop hot employment and wage growth" - is a cop out. Inflation control is the second of their two mandates, employment is the first.
They could have been raising rates during good years before this to curtail some of the bubbles we're seeing, but instead they only chose to do it to protect businesses from wage growth. Which... feels a bit scummy, and much like they're protecting the wealthy at the expense of increasing wage equality.
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Now, on the other hand - the market's reaction is not at all surprising, I agree that given what the fed is saying, this will likely push the balance back towards a larger rate hike, and the market is predicting that as well, and dropping to account.
> But on the other hand, I feel like the current stance of the fed - "raise the rates to stop hot employment and wage growth" - is a cop out. Inflation control is the second of their two mandates, employment is the first.
This is the real reason we need a proper, comfortable safety net and higher minimum wages. In my opinion it is very good to lower the wages of higher wage earners in order to raise interest rates, and just buffer the large number of marginal people (America the beautiful, can't afford to get a tooth pulled) who would actually suffer with transfer payments.
But even if you don't believe that, lower-income people have a higher exposure to inflated prices simply because all of their income goes to consumption. So they should be supplemented.
raised 225 points in the years between 2015 & 2018 (very slow return to some sanity after the cuts in 2008 down to nearly 0)
Immediately dropped by 75 points in 2019 due to trade war concerns (pre covid), then dropped another 150 points in 2020 due to covid.
So back to 2008 levels.
Raised by 450 points at the threat of "wage growth" and hot employment causing inflation over the last 11 months.
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So yes, they were ever so slowly hiking rates back up, but I think the current approach definitely hints at what their priorities are.
To be fair - I don't really believe the fed is entirely responsible - they don't have many good levers to pull to influence the things they've been tasked with influencing.
But I think the timing shows the priorities pretty well. The existence of huge zombie companies hollowing out real markets, only alive because of incredibly cheap cash, was not a serious problem.
I'm no economist, but I think it's fair to raise rates slowly after a long slow economic recovery where you're barely seeing any inflation even when markets and jobs are hot. I also think it's fair to raise rates quickly when there's a huge spike in inflation due to at least partly to excess money supply,which does not go away after waiting a few months.
I don't really disagree with you either. It's one of the few levers that the fed actually has, and it's a BIG lever with lots of consequences and fallout. Moving it is tricky (and hindsight is always an unfair place to judge from).
But it does feel a bit systemically unfair that we're structuring our financial regulations in a manner that seems nearly hellbent on increasing inequality across the population.
That's not really the fed's fault though... I would absolutely lay blame on congress.
Wage increases lag behind inflation. There was a serious lack of concern about inflation with the MMT folks at the Fed and the White House telling us, with daily news reports and articles its "transatory" and not to worry about it, then wages start to tip up and it's a five alarm fire and something has to be done. It's utterly transparent.
As much as it's biased take, OP isn't wrong. Yes, the proximate motivating factor is interest rates, but it does show how economic incentives have gotten misaligned. So long as investors fear something that is a positive for workers, there will be conflict. An educated observer will know this is an emergent conflict and not a conspiracy, but it's still a problem.
Did you read the article?
It’s the anticipation of higher interest rates by the stock markets that send stocks down. And the Fed may do so because they want to raise them “just so much to counter inflation without drifting into a recession”. For Tech that may mean that the focus will shift towards profitability which may increase pressure on the workforce.
What do you mean by “higher income equality”? E.g., people earning the same irrespective of their capability, effort, working hours and “value creation contribution in the economy”? Isn’t income equality (government interventions in some aspects aside) a mere reflection of people’s contribution to a economy and their ability to negotiate? So, are you assuming/applying everyone more or less has the same contribution or do you want everyone to be paid the same irrespective?
> So, are you assuming/applying everyone more or less has the same contribution or do you want everyone to be paid the same irrespective?
The parent said, "more equal", not equal. There is a big difference between saying that everyone should have the same exact wage versus we should narrow the gap between the highest and the lowest paid people.
And there are plenty of examples of people with massive contributions to society who didn't get paid very well. Van Gogh lived in poverty. Albert Einstein was certainly not poor, but I'd have a hard time believing that his "contribution to society" is less than 1/10000th that of Jeff Bezos. For that matter, my elementary school teachers contributed a lot to society. So do many others. I don't believe that the parent comment is arguing that teachers should make as much as CEOs, they are just saying that the gap shouldn't be so ludicrously large.
> Isn’t income equality (government interventions in some aspects aside) a mere reflection of people’s contribution to a economy and their ability to negotiate?
Watch the elision between this and the next sentence:
> So, are you assuming/applying everyone more or less has the same contribution or do you want everyone to be paid the same irrespective?
The bit that's gone is "their ability to negotiate", which depends to a great extent on how wealthy you are already. BATNA, and so on.
Also, conflating income from labour with income from capital confuses the issue further.
Income from capital is generally lower in low-interest regimes. We probably saw inflation in asset classes such as housing and stock as a result of monetary oversupply and cheap access to capital. Not factoring in such things into inflation is a question the Fed would have to address.
With a sufficient social net and minimum wages, even poorly qualified have good negotiation power. No offense, but I’m also not sure how paying 30 USD/h to somebody who doesn’t speak the language and is performing low complexity work is doing society any good. I live in Europe and there is no way anybody would come for house cleaning, shopping or whatnot below that - because they are just better off with free housing, free healthcare, free schooling and money on top.
Unless they are disabled, people should be doing their own house cleaning, doing their own shopping, and etcetera.
Service jobs should be limited to corporations. In your home, you (or your children) do it. Otherwise it's a waste of human talent to have another human dedicate their life to doing a menial task.
I don’t understand your point. It’s not a zero-sum game where some people are forced to clean houses. If they want to not clean houses they can change career.
If you don’t pay them you’re not somehow freeing them up to realize their potential, you’re just giving them fewer customers. At least where I live a lot of professional house cleaners are small business owners.
Sure, I'm probably going to extremes. There are definite economies of scale to specialize in house cleaning and the like. I'm thinking more about the stereotypical rich person type of service with multiple dedicated servants for a single household.
I also think you should grow your own vegetables, keep your own chicken and generate your own electricity. I mean, I’m thinking more about the stereotypical first world person that can just go into a supermarket and buy whatever he wants.
Unfortunately the majority of people in the first world live in areas where that just isn't possible. Outside of a potted plant or two.
But yes, victory gardens FTW! :) At the very least they build in more resiliency.
I think you're being tongue in cheek, but I responded to a person elsewhere online a while back from India who was basically justifying hiring servants as being beneficial. I disagree and think that that's a sink of human resources. The economy, and capitalism, can come up with better uses for most people who are full-time servants.
Inflation benefits people in debt and light labor markets benefit people who earn a wage. It hurts people who already have accumulated capital in the form of bonds and stocks. The Fed acts to protect the interests of the very rich, at the expense of the lower and middle class.
It is a balance. The government is a democracy and corporations need customers, but the wealth gap must be maintained, lest you lose the support of the wealthy who fund politics and buy newspapers to shape public opinion. This tension between the rich and everyone else has existed in every society since the shift to agriculture.
Only if that debt is at fixed rates of interest, like corporate bonds or a fixed-rate mortgage. If your rate is variable, then inflation leads to higher interest rates which increases the cost of servicing that debt.
Note that the US mortgage market is unusual in that 30-year fixed rates are quite common. In most of the world, mortgages are variable-rate, or fixed for much shorter periods.
Actually, higher inflation doesn’t necessarily correspond to higher variable interest rates. Indirectly, yea, but only because the fed is raising the benchmark rate to “fight inflation”.
No one is going to write a mortgage for a lower rate than inflation unless they’re crazy (so the gov’t might, but even then not usually!). They’d be signing up to 100% burn their cash doing so.
Inflation absolutely impacts mortgage rates, and all other lending.
I totally have a mortgage rate that was lower than inflation at the time because it was sth like 0.7% above market rate for 20 years fixed… Banks don’t care about the real value of money the way normal people do. Borrow 100k, pay 1% interest, buy a piece of stone and sell it for 200k after a couple of decades because of inflation and pay back a banks 100k: they are happy because the math adds up.
well, except the math doesn’t actually add up in that case for anyone ‘real’ including any bank using normal lending sources, as that 100k paid back is now worth far less than 100k back when the loan was written.
The reality is that for a long time the Fed was using QE to buy up mortgage bonds written at nearly arbitrarily low rates. Bonds that no one else would buy/fund because the odds of losing money were too great. They’d been doing so since ‘09 or thereabouts to keep that market liquid.
So they were willingly taking the risk of money destruction, and as the one entity that could do so, that’s pretty good. They’re probably the only one that could really do so without going bankrupt, as they are the only entity that can ‘create’ money arbitrarily in the system.
The vast majority of the banks haven’t been underwriting mortgages themselves for a very long time, and the ones that were had been getting put in scarier and scarier positions because of the Fed’s actions.
Right now, the entire sector
is in the process of imploding because the Fed has stopped doing what it was before, and trying to push the markets back to reflect a more realistic cost of money, which of course dries up demand as prices are still based on ‘free cash’ as the benchmark - https://www.bloomberg.com/news/articles/2022-08-19/mortgage-...
Thats the problem. The FEDs gave the banks the money for free. And we gave it to them for free as well because we didn’t get any savings on our accounts…
Those who borrowed money and bought assets literally took a tiny little bite from everybodys savings account every year..
I don’t think so… I mean which inflation figure are you talking about? The one that happens to be about what a 30-year mortgage would also be right now? That’s not usually the case. Mortgage rates are “fed benchmark” + a couple percentage points. Beyond that, correlation to inflation is coincidental.
See my other comments - the fed has been intervening as part of QE since ‘07-‘09 and until recently. they gradually tapered then stopped Dec ‘22. No surprise that mortgage rates started doing weird stuff about then eh?
The relationships to the fed funds rate is also because that is the rate a bank or other big entity can always borrow at, and the fed is happy to ‘print’ as much money as necessary to satiate all qualified applicants at that rate.
No, but lenders demand interest in excess of inflation. Inflation can be transitory, so just because its 7% now doesnt mean a 10 year bond has to be more.
And the mortgage interest rate is set by the bond market, because thats who funds mortgages in the end (see Fannie and Freddie).
Nope. But ‘cost of money’ + x% (where x% is based on risk of repayment, and cost of money includes inflation) is a hard rule for a lender to avoid without going bankrupt.
Lenders who go bankrupt tend to not be lenders very long.
Oh for sure, assuming they got a fixed rate. Inflation that starts AFTER the loan was written/that wasn’t priced in to the loan helps the debtor. The lender, not so much.
So mortgages written today need to include the lenders best guess about future inflation, or they’ll expect to go bankrupt in the future. Which is generally a bad business practice.
They also have to give competitive rates, or someone else will end up writing that loan, and they’ll be out of business due to lack of customers.
As the future is unpredictable, that is of course a risky business unless they’re a special entity like the Fed that can do whatever it wants.
> It hurts people who already have accumulated capital in the form of bonds and stocks. The Fed acts to protect the interests of the very rich, at the expense of the lower and middle class.
You're forgetting the primary asset of the middle class: Housing.
People purchase housing with mortgages. Inflation raises the price of their home and diminishes the impact of their mortgage debt.
Inflation also helps people with a lot of college loan debt, which has furthermore been paused for many people. You'd rather pay of a hypothetical $50K of student loans after inflation (including wages) has made that $50K worth less.
I often think about the few people whose late 20s coincided with record low interest rates, the COVID pause on student loan debt, the extreme job boom where a little LeetCode would hand you a high-paying tech job, and the small window where home prices hadn't yet shot up. Anyone who lucked into the right combination of these factors would have set themselves up for a financial future that I could have only dreamed of in my mid-20s. It's not a large number of people, but I am jealous.
This isn't meant to be an "inflation is good" post, because out of control inflation is definitely not. However, it's not so simple as to say that only the wealthy see any benefit from inflation.
You seem to be making a number of assumptions here that don't necessarily hold. For instance, yes, a house is often a middle class family's biggest asset. But, there's no way to directly tap into that asset without selling or taking out some kind of loan against it (second mortgage, HELOC, even a reverse mortgage if they're old enough). All of those things have, let's say, significant costs and disadvantages. Yes, "imputed rent" is a thing, but that doesn't generally appear on a household balance sheet.
You're assuming people with student debt are actually able to get jobs that can service that debt. That's not the case for 4/10 with student loans [0].
I'd even dispute that inflation is good for most Americans, given that just over 50% can't cover a $1000 emergency expense from savings[1], and nearly 2/3 are living paycheck to paycheck [2]. Nearly 3/4 of middle class Americans say their earnings are falling behind their cost of living [3].
I know you specifically weren't trying to paint inflation as an unvarnished good for middle class people, but other people commenting are making these points, and I just don't feel like making multiple comments to pick at those arguments.
> For instance, yes, a house is often a middle class family's biggest asset. But, there's no way to directly tap into that asset without selling or taking out some kind of loan against it (second mortgage, HELOC, even a reverse mortgage if they're old enough). All of those things have, let's say, significant costs and disadvantages.
You're missing the biggest advantage: They bought the house with a fixed mortgage payment (assuming US and 30-year mortgages).
Their monthly housing payments stays the same in absolute dollar numbers, but it's constantly going down in inflation-adjusted numbers.
Meanwhile rents are going up for everyone who rents.
It's not hard to get a HELOC if necessary for expenses, but the real benefit is in forced retirement savings into house equity.
> given that just over 50% can't cover a $1000 emergency expense from savings[1],
Nope, this is clickbait financial pseudo-journalism.
The headline is a lie. Scroll down and look at the chart and the questions they asked. They did a telephone survey (which has massive selection bias. Would you answer an unknown number and spend time taking a survey? Or would you be busy doing your job and living your life?) and asked people how they would pay an emergency $1000 bill. They didn't ask if they could pay from savings, they asked how they would pay the bill. If the person responded, for example, that they'd "pay the bill and cut other expenses" then they were counted as being unable to handle the emergency expense.
Ignore the clickbait finance headlines. They're deliberately misleading and designed to make you think the economy is on fire and everyone's drowning.
Read the fine print on these surveys. The questions are also deliberately slanted, and the survey respondents are always biased toward specific groups (e.g. people who are bored enough to answer random phone numbers and take a phone survey from a stranger). These are not representative of the U.S. population as whole. Do you know anyone who would answer random phone numbers and take a phone survey, for example?
I notice you have no problem with the other 3 links I provided. I suppose those are not "clickbait journalism?" If you expect me to change my mind based on the chart in the article, you are mistaken. Only 44% of people surveyed are able to cover a $1000 expense from savings. That means 56% would not be able to. What are your specific objections to the survey's methodology?
I also don't think you understand why getting a loan to pay expenses isn't a great idea. Perhaps try spending some time in the real world, where people are drowning, and the real economy is on fire.
> Would you answer an unknown number and spend time taking a survey?
> ...the survey respondents are always biased toward specific groups
This could cut both ways, I think.
Anecdotally, I grew up poor and we let all unknown numbers go to voicemail. No one was calling to give us a million dollars, we just presumed it was a bill collector.
Exactly! Hyperinflation is terrible and economy destroying. But I think a good argument can be made that moderate inflation, much higher than the typical 3% target is very good for most people.
Inflation (but not hyperinflation) benefits people in debt, and hurts people with savings. Is having savings nowadays considered intrinsically less moral or something?
Inflation targeting of, say, 2%, is the balance that takes into account the sometimes competing interests of all these groups (savers, borrowers, wage earners, people who live off investments, etc). Deviation into either direction causes long-term structural problems.
In other words, loans create deposits, not the other way around. Savers are hoarding cash which leads to a decrease in aggregate demand, and also ironically their ability to save in the future.
In my experience, service sector working class people generally have no savings due to low wages and high cost of housing. I think it's not that people view saving as immoral; rather they view it as a class indicator.
It appears that if the lower class starts seeing wage increases, then our economy falls apart and/or the Fed steps in to stop it. That suggests that our economy is broken with respect to the lower class.
> In my experience, service sector working class people generally have no savings due to low wages and high cost of housing.
Statistically, a lot of middle class people save their wealth in their houses, which are bought via mortgages.
Inflation benefits those people significantly by raising the value of their house and making their 30-year fixed mortgages (in the US) easier to pay off. It's not so great for people in other countries with variable rate mortgages, though.
I don't think that's different than what I said. Wages started increasing and the economy started to fall apart prompting the Fed to step in. That means that the system is broken. There is no way for the lower class to get ahead. If they make higher wages then prices will simply increase so that they aren't actually ahead.
Yes, savings are "intrinsically less moral" as savings are money not being used. And since wealth accumulates itself the more savings the more income inequality. It is intrinsically immoral that the wealth controlled by two dozen Western families is larger than the wealth of three billion people.
>Yes, savings are "intrinsically less moral" as savings are money not being used.
Incorrect. Savings (i.e. bank deposits, financial instruments of various degrees of risk, from GICs to junk bonds) are very much being used, they are lent to other entities. Few people "save" by stuffing pieces of paper or gold coins under a mattress.
>And since wealth accumulates itself the more savings the more income inequality.
The logical error here is to think of savers and borrowers as permanent classes. In fact most people's life trajectory starts out as them borrowing more (for education, house, etc) and gradually transitions into them saving more (for retirement, inheritance). You need a healthy mix of borrowers and savers in a healthy economy. They help each other by participating on the opposite ends of a transaction from which they both benefit (i.e. not zero sum).
And, as an aside, wealth/income inequality is not somehow intrinsically negative, like for example poverty would be. Poor or middle-class people in a rich but very unequal society may very well be much better off than poor or middle-class people in a poor but more equal one.
>It is intrinsically immoral that the wealth controlled by two dozen Western families is larger than the wealth of three billion people.
It is not.
Let's say there's a policy which raises the standard of living (or amount of wealth) of the bottom 3 billion people by 1.2x, but raises the amount of wealth of the top two dozen dastardly Western families by 1.3x. This increases wealth inequality, and yet it is intrinsically moral to pursue this policy.
> Incorrect. Savings (i.e. bank deposits, financial instruments of various degrees of risk, from GICs to junk bonds) are very much being used, they are lent to other entities.
No, they are not lent to other entities. When a bank creates credit/load, they simply type something into a computer and the entity gets a credit in their account.
The lending of savings and bank reserves and the multiplier has not been a thing for decades. Tobin called this the "Old View" in 1963:
Why did you ask the question if you thought you already knew the answer? By definition, savings are being saved. Investments are being invested. If you think that savings and investments are synonymous then you are wrong. According to https://www.marketwatch.com/picks/heres-exactly-how-much-ame... the median American has accumulated a measly $6,400 in their decade before retirement. Money they will then need to use when they are retired and without income. And that is in one of the richest countries in the world. So it is correct to talk about borrowers and savers as permanent classes.
Right now, profits are record high while real salaries are shrinking due to inflation (i.e. due to massively raised prices). You have to be a fool not to be able to connect the dots.
>Why did you ask the question if you thought you already knew the answer?
"Incorrect" referred to "savings are money not being used", i.e. the rationale for your answer, not your answer itself.
>If you think that savings and investments are synonymous then you are wrong.
You just need to think it through a few more steps. For example, what do banks do? They take your savings and invest them. Bottom line is, savings are absolutely, definitely, and crucially not "money not being used".
>the median American has accumulated a measly $6,400 in their decade before retirement.
No, that's not what the number is. The number is savings, but excluding retirement funds. So if I put money into my Roth IRA or 401k, it's not counted, even though that can be just money sitting in a bank account or a GIC, i.e. very straightforward savings.
>Right now, profits are record high while real salaries are shrinking due to inflation (i.e. due to massively raised prices).
Yes, we have a big problem with inflation, and the Fed (and other central banks) are addressing it.
Read the sibling's comment because this is incorrect:
> Bottom line is, savings are absolutely, definitely, and crucially not "money not being used".
By definition, "savings" are not being used. Had they been used trickle-down economics would have been an awesome policy. You'd just put more money on rich peoples' bank accounts and the money would magically reappear in someone else's pockets!
The median American retirement fund is about $90,000. Regardless how you count that is not a lot.
> It is intrinsically immoral that the wealth controlled by two dozen Western families is larger than the wealth of three billion people.
I think many people would agree.
But there's a huge difference between people who are sitting like dragons on hoards of money, and your average person saving money for emergencies, for retirement, for a home down payment, for vacations, whatever else.
Most people are not behaving immorally by saving money. Some people who are absolutely hoarding money absolutely are behaving immorally.
Yes, God forbid that people have savings and be able to survive hard times by themselves, we should all be neck deep in debt, and rely on our wonderful government to take care of us. Financial independence makes you a public enemy and potential terrorist. /s
And weighed by the amount of debt, those are mostly people rich enough to hire specialists for the tedious parts of using some (most) of their assets as collateral for further investment. People living paycheck to paycheck, on maxed out credit cards, those are not the winners of inflation you are looking for.
Hardly more than few years of wages. And when inflation hits, those wages usually trail behind quite considerably. Some may still come out positive, but not by much. The winners of inflation are the leveraged investment class.
No, it isn't, and this isn't some "it's a reeeeepublic" rant, either. When half the population couldn't legally vote for most of the country's history, that's not very democratic. "Oligarchy" is a better fit, but apparently we only reserve that for countries we don't like. Average individuals working average jobs and making average incomes get next to no say in anything that happens at a national level, and I would be surprised if it were any better at the state level.
That point I was trying to make is that if the economy were bad enough, people would vote out the incumbent government in droves. The vote is a safety value that prevents riots and armed revolution. Autocracies are brittle to changing public perception and can go the way of the guillotine.
The phrase "bad enough" is doing an awful lot of work here.
Besides, whatever party is in charge, the other party is always nearly as bad or worse. First past the post, the Electoral College, and campaign finance law all but ensure that your only two choices are the right wing neoliberal party or the ultra right wing neoliberal party.
I think I would argue inflation benefited those who were wealthy the most in the past. But keep in mind that the increase in asset value was not factored into that inflation math. So: assets got more expensive because of inflation; net wages went down because of inflation that wasn’t recognized as such; the rich paid the same for labor but benefited from an increase in their asset prices.
Bonds were a really bad investment in that respect…
I think that what many people want looks something like:
Everyone who makes a good faith effort to contribute to society is paid enough to have a decent quality of life (raise a family, own a home, afford medical bills, participate in recreation).
When a company succeeds, the employees receive a meaningful amount of the benefit. Not necessarily that they receive as much as the CEO (or even in the same order of magnitude) but that they are meaningfully rewarded.
Wealth inequality is not so great that the wealthy are effectively above the rules that apply to everyone else.
And their stock soared 25% yesterday because of their profitability. Are you trying to prove the point I’m making or just mad at me that I explain capitalism?
The biggest problem (among many) I have is that they bold faced lie.
When Zucc says "I view layoffs as a last resort" and then announces 40 billion buyback he should be lawfully punished. If there's no law for that there should be.
I think many people (myself included) see it as a problem that capitalism so clearly works against the interest of the many to benefit the few. We understand why stock buybacks and layoffs increase shareholder value, and therein lies the problem.
Every other system had more wealth destroying and catastrophic outcome for society.
Not arguing for “unrestricted capitalism that is never tamed” - but with a functioning social net and access to basic needs for almost everyone it’s probably pretty amazing.
You are also missing, that for most people this is probably great: less high income individuals competing for resources in the marriage, housing, etc market. They see their wages increased and their relative purchasing power in society lifted and are happy about this development.
Isn't the idea behind raising rates to combat inflation that it works to reduce demand by forcing people to tighten their belts?
"We need companies to fire a lot of people so that fewer people can afford nice things" is less politically palatable than, "we are aiming for a soft landing".
Stocks went up previously because the companies believe that with all the layoffs, people were getting desperate enough that the rate hikes would slacken off and they'd be able to start hiring at fire-sale prices. The strong January jobs data makes the companies and Fed alike worry that their workers might start to get uppity and ask for raises or benefits again soon.
The Fed wants to control inflation sure by raising interest rates. They see a strong labour market as a driver of inflation, as workers can negotiate higher wages when they are in shorter supply.
In terms of income equality, I don't think the OP was advocating that people should all be paid the same. Merely that lower paid workers would be in a strong position to gain relatively more, thus narrowing the gap. I don't know if that is true; it's merely what I understood from the post.
> For Tech that may mean that the focus will shift towards profitability
Is it like tech or any other industry has ever focused (directly or indirectly) in something else? Maybe they just realized their superpowers are waning and they can’t keep hiring with obscene salaries indefinitely.
I’m not sure I follow your cynicism: I celebrate ICs making 500k or 1M working for a company in the US instead of making “the same with a PhD in physics as an assembly line worker at Volkswagen”.
If an IC delivers 100MM in cost savings for a company because his software scales almost arbitrarily and gets paid highly: that’s a win for the working class population.
But that does not take into account VC-powered startups, like Uber, which never turned profit in their history, so that 500k-1M compensations for ICs are directly financed by VC money, which is unsustainable. I think that's what GP meant: the "superpower" to raise VC money is waning, and Sillicon Valey unicorns need to start operating like any other company, hence the layoffs.
Agree, as long as it is sustainable and realistic but this trend of firing people in the tech scene where even companies like Google have been involved, with still huge earnings, makes me doubt about it. And even worst it seems they don’t know either what is going on and if it is the right path.
> Isn’t income equality (government interventions in some aspects aside) a mere reflection of people’s contribution to a economy and their ability to negotiate? So, are you assuming/applying everyone more or less has the same contribution or do you want everyone to be paid the same irrespective?
Sure, the heirs from Rich Kids of Instagram are living off their rentier expropriation as a "reflection of people’s contribution to a economy", while the people doing the work and creating the wealth are contributing less to the economy, in your view.
The fruits of the economy are swallowed up by these parasitic heirs expropriating surplus labor time from those who work and create wealth, but your view is parasitism is somehow the greater contribution to the economy.
So you are mainly talking about passive income inequality?
I was talking about income that is earned.
Well, what do you want me to say: the country I live in we have a high tax on inheritance, capital gains etc.
But to me personally: I am grown up enough to not care how many Porsches my neighbor has. How does this matter? There are resources that cover basic needs such as health, living, education and food. But in Europe you get all that for free irrespective whether you work or not. Health coverage is as good for an unemployed family not speaking the language as it is for two full time working parents. As is schooling as is university.
> But to me personally: I am grown up enough to not care how many Porsches my neighbor has. How does this matter?
When something I made is sold at a company, used raw materials are rebought, but then left over is the wealth I created. A portion goes to me in wages, a portion is mailed off in dividend checks to the heir who is expropriating my surplus time. It matters because the heir is expropriating surplus labor time from me, and all the wealth I create in this time. That is why it matters.
Then you have either negotiated your share in value creation poorly or your skills are easily sourced.
Irrespective of that you are assuming happiness is just associated to absolute monetary wealth - which I disagree with. If basic resources and needs are catered for and the rest is spent on luxury goods or extravagant lifestyles - how would I care? If you want to still play that game, just travel and ask yourself what a person living in India/Bangladesh/Laos would say about your first world problems. Being born into a wealthy society is the most important differentiator for wealth - and I assume you are totally ok with the luck you had there!?
Vanishingly few people are arguing for complete equality of outcome. As long as everyone[1] has a reasonable quality of life and inequality isn't so great that the wealthy can flout the rules that apply to everyone else, then I don't think that most people, even on the left, would have a problem. However, that's not what America currently has.
[1] I'm using "everyone" metaphorically here. No system is going to have literally no one who falls through the cracks.
So tired of hearing how America is a free market. Supply / demand doesn’t matter here. We’re all owned by the banks, and ultimately the Fed and government pick the winners and losers.
You should probably look at "net worth" with a normalization for age as it would be unfair to compare the 20-40 range vs the 60-80 range. Taking on debt vs paying off debt.
Now to be fair I am not sure you can normalize this as we don't know what the future holds but it's worth noting for anyone sub 30 years old.
> unfair to compare the 20-40 range vs the 60-80 range.
No, you want the skew. The goal is to capture the people who own 90% of stock, so you do want wealth regardless of age.
It would be more accurate to have some measure of stock ownership to income, but I think that would not be as useful. Stock ownership probably does just track closely with age, since you store up all these assets to live off during retirement. Most young people will not own 1M+ in retirement and investment funds. Even high income people will instead spend that money on a house etc.
I am seeing significantly lower numbers which I look at the 2020 SSA data. I question if Investopedia got their number right. 5th percentile would appear to be about 150k.
Check numbers for your profession, and if you are way below norms, consider looking for a new job (perhaps in a high wage geographic region), or ask for a raise.
There are serious labor shortages throughout the job market.
Again this is wealth so the top 10% is households with at least $1.2 million USD in net worth.
> The top 1% gained over $6.5 trillion in corporate equities and mutual fund wealth during the pandemic, according to the latest data from the Federal Reserve.
> The bottom 90% of Americans held about 11% of stocks, and added $1.2 trillion in wealth during the Covid-19 pandemic.
American workers are highest paid in the world. The same evil “wealthy” investor class is not responsible for Americans getting the highest wages but is only responsible for job cuts?
1. 5th is still high. So, is the evil investor class responsible for even median wages being high? Are we really arguing that median income in the US is low?
2. The other deleted sibling comment had a valid point. The other higher ones are small nations.
Also, please stop posting flamebait and/or unsubstantive comments to HN. You've been doing it repeatedly and we eventually have to ban that sort of account.
Sorry, but I don't care if you ban my account. I have absolutely zero connections to this account or its username and would just simply create another account if it did get banned.
Sure, people do that. But I'd rather try to persuade you to use the site as intended. If it has value, it's worth preserving, and if it doesn't have value then I don't think you'd be here. Right?
This might be what the fabled "soft landing" looks like.